A Practical Guide to International Philanthropy
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Who Should Read A Practical Guide to International Philanthropy

         You are successful and affluent.  Perhaps you have become wealthy as an entrepreneur who has formed and grown a successful business.  Perhaps you have achieved success as an investor by multiplying the capital you have accumulated from the sale of a business. Perhaps you have recently received a sizable inheritance.  Now what?

Presumably the material wealth you now possess will be sufficient for maintaining the standard of living you have set for yourself and your family so that you no longer need to “make a living.”  So now is the time to ask yourself: what is your passion?  For many, it will be golf, sailing or travel.  But for many others such pursuits by themselves would not be fulfilling.  For these persons, a wider cause--whether promoting education, alleviating poverty, promoting peace and understanding among nations, enhancing protection of the environment or advancing science--beckons.  Having spent much of your adult life pursuing financial security, success now accords the freedom to pursue goals that will benefit some segment of humankind.  Just as your endeavors in business or investing have been notable, your philanthropic goals will likely target something significant.

           A Practical Guide to INternational Philanthropy is written for those families and individuals who are ready to pursue cahritable goals seriously, as well as those who are already doing so.  Its principles also apply to businesses seeking to set aside some portion of their potential or accumulated profits to devote to such pursuits.  They also apply to existing U.S. foundations considering expansion of their scope and perhaps adoption of a hedging strategy in the event trends towards overreaching government regulation continue.

The book examines factors and decisions which are inherently private.  As is explained in detail, U.S. tax disincentives drive numerous charitable organizations to operate as public charities.  Public charities, however, usually expend a sizable portion of the gifts they receive each year for their charitable purposes and then each year again seek to raise additional resources to replenish these grants.  If you contemplate funding an organization with a single or series of large gifts and wish to avoid raising new funding from outside sources on a continuing basis, you will not be interested in establishing a new public charity.  Fundamentally, you will want to control the direction in operations of the philanthropic endeavors to be pursued.

In evaluating whether to establish a private foundation, it is assumed that the purposes of the foundation will be innovative, uniquely responsive to a set of perceived problems-- and perhaps controversial.  Of course, if your philanthropic interests are being addressed by an existing public charity, you may wish to devote your resources to furthering that entity’s goals.  In that case, join the organization, support it and perhaps become a member of its Board.  If you can find such an organization, so that your charitable goals can be realized by “piggybacking” on an existing organizational and legal infrastructure created and maintained by a public charity, you can stop reading now.

To the extent, however, that existing charities may not fulfill your sense of what can or should be accomplished any particular field of charitable endeavor -- and in particular, your potential for leadership -- A Practical Guide to International Philanthropy will provide guidance on alternatives to pursuing your vision.  Your efforts have generated the resources; it is your prerogative to pursue and advance your values and philanthropic goals.  The vehicle for doing so will allow you to instill in your children or other family members or friends the values you are articulating and pursuing and attract a group of individuals that share these values and will help you implement them.  Moreover, it will allow you to pass your unique charitable values on to succeeding generations and serve as a uniting force for your family and/or close circle of friends.

So how do you set up a foundation?  What type of legal structure do you use and where do you establish it?  Most individuals in the United States, that is, U.S. citizens and residents for tax purposes (so called “green card” holders), pursuing philanthropic goals will either participate in existing entities or establish private foundations under the law of a particular state.  Frequently, decisions on structure will be driven by tax considerations as to the deductibility from Federal and state income taxes or estate taxes and exclusion from gift taxes.  Indeed, most of the current structure of regulation of U.S. charitable organizations derives from the tax benefits granted to donors and the exemption from taxation to the organizations themselves.

This book discusses the legal framework and mechanics of establishing a charitable entity which qualifies for tax benefits available under U.S. law.  Those benefits, however, come with “strings attached” in the form of a complex regulatory regime, under which the charitable organization must initially qualify and then be operated and maintained. Moreover, in the wake of the 9/11 terrorist attacks and the Enron-era corporate scandals, Congress, the Internal Revenue Service and state legislatures are all actively looking for new ways to regulate charities.  Stricter, and therefore more intrusive, regulation in some form or another will surely be a permanent part of the regulatory framework under which U.S.-based charities must operate in the future.

          Where the tax benefits available under U.S. law are of minimal value because of the donor’s individual tax circumstances, are not necessarily needed, or can be deliberately foregone, A Practical Guide to International Philanthropy offers an alternative strategy: consideration of foreign jurisdictions as a possible situs for the charity.  In foreign jurisdictions, the charity can be operated flexibly – and privately – outside of the constraints of the U.S. regulatory regime governing private foundations.  A roadmap for establishing a charity in a foreign jurisdiction is provided, together with a description of the advantages and disadvantages of utilizing foreign charitable structures for U.S. citizens and residents.

         For some individuals, the U.S. tax advantages available are more than outweighed by the burdens and constraints of regulatory compliance. For others, their charitable purposes are impossible to achieve under current U.S. regulations.  For example, anonymity of gifts is virtually impossible from a U.S. private foundation.  Likewise, devoting all of the profits from an ongoing business enterprise towards charitable purposes is prohibited by the U.S. private foundation regulatory regime. Such individuals may deliberately choose to forego short term tax benefits in favor of longer term freedom accorded from a foreign foundation structure.

The ideas in A Practical Guide to International Philanthropy may also appeal to families and individuals who are already operating private foundations in the United States and are concerned with the growing intrusiveness of government regulation of their charitable endeavors.  For this group, the possibility of “cloning” the charitable organization outside of the United States represents a hedging strategy, so that if expanding regulation should become too burdensome, the charitable structure will already be in place for continuing philanthropic activities outside of the United States without interruption.  In the interim, the foreign charitable structure can be “test driven.” Just as investors employ multiple strategies to buffer risks inherent in any specific investment sector, establishment of a foreign private foundation can provide an alternative approach to pursuing charitable goals unconstrained by the burdens of multiple layers of government regulation in the United States.

A Practical Guide to International Philanthropy is written for American philanthropists -- current and potential. Although its author is a lawyer and the legal topography to be navigated to have a basic understanding of the area is complex, its approach is practical and “hands on.” The usual “law review”/ legal textbook formats and their emphasis on footnoted minuitiae are avoided.  Although lawyers not expert in the area of exempt organizations may find the topics covered useful as a general overview of applicable law, A Practical Guide to International Philanthropy does not hold itself out to be a comprehensive legal treatise.  It is written for lay persons making decisions to create charitable organizations and for their advisors.  Nevertheless, primary authorities and references are cited.

False Charity

Many of the ideas in A Practical Guide to International Philanthropy are controversial. Its subtitle might well have been “living with anachronistic Internal Revenue Code provisions governing international charitable activities.” The book's observations and the possible alternative charitable structures described are most decidedly not “mainstream” thinking, and indeed, may be perceived as dangerous, overly aggressive or subversive by legislative and executive branch individuals charged with implementing, overseeing and perhaps expanding the existing regimes regulating private foundations, particularly in the post-9/11 world.

None of the suggestions offered, however, should be understood to provide a roadmap to those who would subvert charitable or philanthropic enterprises for illegitimate purposes.  Much has been written after the 9/11 terrorist attacks about certain so-called Islamic charities. Although having names suggesting that their purposes, for example, were to alleviate poverty and hunger among children, some of these entities in fact have served as conduits for supporting terrorism.  The subversion or perversion of charitable organizations for evil purposes should not be permitted to constrain the vast array of legitimate philanthropic organizations which are working creatively to address numerous problems of the world, which are not or cannot be remedied by governments or private enterprise. 

Stated differently, none of the comments or suggestions in A Practical Guide to International Philanthropy should be viewed as a guide to “gaming the system” or be seen as an invitation to subterfuge.

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